Arab World Competitiveness Report 2007

CHAPTER 2.3
Promoting Technology and
Innovation: Recommendations
to Improve Arab ICT
Competitiveness
SOUMITRA DUTTA, INSEAD
ZEINAB KARAKE SHALHOUB, American University in Sharjah
GEOFFREY SAMUELS, INSEAD
The Middle East has begun to embrace the Internet.
During the past six years, the region recorded the largest
growth in Internet users among the major world areas
as the number of Middle Eastern citizens accessing the
Web soared by more than 600 percent, three times the
world’s average increase.The mobile telephone market
has become a prodigy market, as liberalization across the
region has led multiple vendors competing to lower
costs and improve performance to attract record num-
bers of new customers.
However, more important than rising Internet
access or ringing mobile telephones is official awareness
at the highest levels of Middle Eastern governments that
it is no longer possible to relegate information and
communication technology (ICT) policies to an admin-
istrative sideshow.A country’s ICT capabilities can pro-
foundly affect its capacity to innovate and its global
competitiveness, as well as improve the socioeconomic
prospects of its less-advantaged citizens. Senior-level
attention to ICT as a key enabler of innovation has
been expressed in different ways in different countries,
but a fundamental and salutary change is that these
issues now rank as top agenda items.Whether this atten-
tion will usher in effective policies, however, remains a
debatable issue.
The Middle Eastern technology challenge
The international community has confirmed ICT’s
potential to enable innovation and to advance a country’s
development agenda.Although innovation is often asso-
ciated with large projects in cutting-edge sectors, such as
biotech or nanotechnology, the cumulative effect of
small improvements occurring throughout the entire
spectrum of economic activity is likely to have an even
more pronounced effect on the development process of
a country as argued by Mokyr (1990) and Trajtenberg
(2006). ICT, the leading general purpose technology of
our time is probably the most important enabler of such
improvements, which cumulate to innovation in prod-
ucts as well as processes.1
At the same time, a particular
characteristic of general purpose technologies is that
they entail interdependencies—for example, the use of
ICT can also trigger innovation by requiring products
and processes to be adapted to the new technology.This
in practice is often carried out by small- and medium-
sized enterprises (SMEs). Countries that do not use ICT
technology intensively forego many opportunities for
fostering innovative activity.
Recording the world’s highest growth rate of
Internet access over the past six years is an encouraging
sign that Middle Eastern countries are approaching the
technology challenge with much more dedication.
However, delay investing in ICT technologies, infra-
structure, and human skills has meant the Middle East
lags considerably in its development relative to the rest
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2.3:PromotingTechnologyandInnovation
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of the world. Only sub-Saharan Africa posts lower aver-
age ICT access and performance standards.2
If Middle Eastern governments are to lift their
countries’ technology capabilities to developing and
emerging world averages, they will need to make con-
siderable financial and resource investments as well as
introduce policy changes to encourage innovation that,
in some areas, will rub against long-established business
practices. New policies must be carefully considered
because their impact and scale are considerable, the
issues are complex, and they must coordinate with on-
going development programs to ameliorate pressing
socioeconomic, and even political, needs. Prioritizing
initiatives is essential.
Equally important are designing and supporting
processes to implement these initiatives.The cultural and
administrative challenges for Middle Eastern economies
where state bureaucracies play a prominent role should
not be underestimated.This is especially true because
technologies and innovative capabilities evolve at ever-
faster rates. New ways to connect users to the Web, such
as WiMax, can potentially extend access to more citizens
at more affordable costs. If Middle Eastern governments
are to make the right investment and regulatory deci-
sions to encourage innovation, they should engage the
private sector from consulting on priorities and technol-
ogy potential to participating in various forms of pub-
lic-private partnerships.
Public-public partnerships across the region also
hold the promise to help governments share experience,
expertise, and resources to craft innovative regional
approaches that could advance each country’s specific
development agenda and priorities.There is considerable
potential for regional partnerships by pooling cross-country
infrastructure investments, negotiating with vendors, and
sharing best practices.The region is home to countries
considerably more advanced than their neighbors—such
as Jordan,Tunisia, and the United Arab Emirates—in
developing and applying technologies.These countries’
shared expertise and experience can greatly assist all
governments in assessing appropriate policies, investment
priorities, and innovative development techniques.
This chapter will explore the link between ICT
and innovation in the region and present an overview of
current technology capabilities and issues for a subset of
Middle Eastern countries (Western Asia) to indicate the
wide variations in the Arab world for this key enabler of
innovation.3
The chapter will then link these variations
to the results of a recent Arab world executive survey
about innovation, present brief case studies of innovation-
enabling initiatives in the United Arab Emirates and
Jordan, and recommend policies to improve ICT per-
formance by stimulating innovative approaches across
the Arab world.
Innovation and divides
A visitor to the Middle East’s Western Asian region will
quickly see vast differences between and within each
state.All these countries confront divides—in demo-
graphic, economic, social, educational, and natural
resource arenas, for example.The digital divide is the
most recent, but it mirrors long-standing regional and
historical issues because technology touches and reflects
so many facets of a country’s economy and society.Table
1 provides a snapshot comparison of each nation’s major
ICT statistics.
These statistics and rankings have been assembled,
compiled, or analyzed by, among others, the International
Telecommunication Union (ITU), the World Bank, the
United Nations, the Economist Intelligence Unit, and
the World Economic Forum. For reasons beyond the
scope of this paper, acquiring basic technology and
innovation data in developing countries, let alone accu-
rate market statistics, can be problematical.The Middle
East is no exception, and various statistical techniques
were applied to produce these figures.4
The reason this caveat is not a footnote is because
monitoring and evaluating technology development ini-
tiatives are essential to discovering what works and what
does not. Domestic and cross-country performance
82
Table 1: Summary of country indicators
GCI EIU Internet Broadband Secure Schools
NRI rank NRI rank Innovation e-readiness Internet bandwidth PCs per subscribers Internet servers connected to
2005–06 2003–04 Rank rank 2006 users per 100 (Mbps per 1,000 per 1,000 per 1 million the Internet
Country (out of 115) (out of 102) 2006–07 (out of 68) population 10,000 population) population population population (percent)
Bahrain 49 — 101 — 21.61 2.75 — — — —
Egypt 63 65 82 55 4.37 0.11 22 0.4 0.4 66
Jordan 47 46 64 54 8.11 0.17 55 0.9 3.9 18
Kuwait 46 — 81 — 22.82 0.32 122 5.4 21.1 —
Oman — — — — 7.1 — 37 0 2.3 —
Qatar 39 — 41 — 19.93 2.5 190 — — —
Syria — — — — 4.5 — 19 0 — —
United Arab Emirates 28 — 40 30 33.99 2.69 117 13.1 40.4 —
Source: World Economic Forum and INSEAD, 2005; World Economic Forum, 2006, Economist Intelligence Unit, 2006; World Bank, 2006.
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comparisons require surveys to be conducted in a
consistent manner. Government officials and corporate
officers are at a serious disadvantage if they cannot refer
to reliable, timely data to assess and modify policies.
Unfortunately, this is largely not the case today in the
Middle East.
Notwithstanding the above caveats, the general out-
lines of the region’s relative technology development
can be discerned.The Gulf Cooperation Council (GCC)
countries exhibit the highest level of ICT development.
A Madar Research study finds these states have more
than 40 percent of all Internet users in the Arab world,
but only 11 percent of the total Arab population.5
The United Nations Economic and Social
Commission for Western Asia (UN-ESCWA) for the
past several years has conducted major investigations
into the region’s ICT evolution. On a scale of 1 to 4
(with 4 being the highest), the Commission ranked each
country’s performance (see Table 2).
The GCC subregion scored an average of 2.53
points, compared with the non-GCC Western Asian
average of 1.8 points. However, the entire region’s
shortfall in comparison with the developed world can
be appreciated by observing that developed countries
would earn top (4) or nearly top scores in every category.
The UN Commission raised a number of important
issues the policy recommendations will address, most
notably:
• There are deficiencies in monitoring and evaluating
e-strategies, as well as in financing initiatives.
• ICT sector development scores the lowest perform-
ance because Western Asian countries have a poor
record producing and exporting ICT products and
services; there is weak official support for developing
the ICT sector; and, until recently, foreign companies
have been reluctant to consider investing.
• Improving ICT legislation, regulations, and enforce-
ment are high priorities because most of the region
lacks laws and regulations protecting consumers’
confidential information and privacy, national
copyright and intellectual property laws are poorly
enforced, and inadequate regulatory structures
govern the Internet and telecommunications.
Technology infrastructure
Technology infrastructure in the Middle East is relatively
more advanced because, candidly, it is a less politically
contentious issue. Laying cables, stringing wires, and
buying boxes are largely a question of finance. By con-
trast, changing legal, regulatory, and institutional structures
requires transforming well-established socio-cultural
practices.
The region has recently been upgrading connectivity
to the global Internet. For example, Internet bandwidth
in Egypt increased considerably in one year, from 850
Mbps in 2003 to 2,060 Mbps the following year; Syria
raised Internet capacity to 2.1 Gbps by year end 2005.6
The United Arab Emirates has the region’s highest band-
width capacity at 10 Gbps, according to an Etisalat source.
However, Middle Eastern intraregional connectivity
is not as well developed, partly reflecting long-standing
historical regional relations. Most Middle Eastern Internet
traffic is exchanged outside the region through network
access points (NAPs) in the United States and other
countries, resulting in higher costs and suboptimal per-
formance.The ITU’s Arab Regional Office is seeking to
introduce new regional electronic connections by
launching a regional US$200 million initiative—NAP
for the Arab states—to engineer closer Arab Internet
networks.7
However, if the region is to approach ICT infra-
structure levels of the developed world, a much higher
rate of investment is necessary.The UN Commission
83
Table 2: Ranking of Middle Eastern countries according to maturity level in information society, 2005
Legal ICT Capacity ICT sector Commerce Arabic
Country Policies framework infrastructure building building Government Education and business Health content Average
United Arab Emirates 3 3 4 3 3 3 3 4 3 3 3.2
Bahrain 4 3 4 3 1 3 3 4 3 2 3.0
Jordan 4 3 2 3 3 3 3 3 2 3 2.9
Kuwait 3 2 3 2 1 2 3 3 3 2 2.4
Saudi Arabia 3 2 3 2 2 2 2 3 2 3 2.4
Qatar 2 2 3 3 1 3 2 3 2 2 2.3
Egypt 3 2 2 3 2 2 2 2 2 3 2.3
Lebanon 2 2 2 2 2 3 2 3 2 2 2.2
Oman 2 2 2 2 1 2 2 3 2 1 1.9
Syria 2 1 2 2 1 2 2 1 2 2 1.7
Palestine 1 1 2 2 1 1 1 1 1 2 1.3
Iraq 1 1 1 2 1 1 1 1 1 1 1.1
Yemen 1 1 1 2 1 1 1 1 1 1 1.1
Average 2.38 1.92 2.38 2.38 1.54 2.15 2.08 2.46 2.00 2.08 2.14
Source: UN-ESCWA, 2005.
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estimates average regional ICT spending, as a percentage
of GDP, at 2.87 percent—considerably below the global
average of more than 6 percent.8
Reflecting the GCC
regional divide, estimated Egyptian ICT 2004 spending
was 2.37 percent of GDP; UAE ICT spending was val-
ued at 3 percent; while Bahrain invested twice as much,
6 percent of GDP, to record the region’s highest ICT
spending.9
As another sign of limited ICT integration in the
economy, Middle Eastern average spending on ICT
research, development, and innovation (RDI) is very
low as a percentage of GDP even compared with that
of developing countries.The Arab region invests 0.2
percent of GDP in RDI; global developing country esti-
mates are 1.6 percent. Developed countries average 2.5
percent of GDP. Jordan is a notable exception, however,
allocating a high RDI budget as a major component of
its strategy to position the country as a knowledge-
based economy.10
Legal and regulatory issues
The Middle East features an underdeveloped legal and
regulatory environment that hinders efficient technology
development and innovation. Laws and regulations
regarding intellectual property rights (IPRs) and the
ICT sector have, for the most part, been created to meet
international demands such as WTO requirements,
rather than responding to local business or public
demand.The critical role of coherent and enforceable
laws to encourage ICT investment and development is
not widely appreciated in the Middle East. For example,
because information privacy and security is not current-
ly required by international entities, no country in the
region has ventured independently to impose its own
legal protections.11
Most countries have joined several international
treaties and enacted some laws pertaining to IPRs.
However, respondents to the World Economic Forum’s
Executive Opinion Survey, which forms the basis of the
Global Competitiveness Report, indicate that the level of IP
protection and enforcement varies across countries—yet
even the technologically most advanced countries in
the region do not reach the levels found in innovation-
driven economies such as Japan or the United States
(see Table 3). Several international organizations, such as
the International Intellectual Property Alliance and the
Business Software Alliance (BSA), consider enforcement
to be inadequate and have placed several countries on
watch lists. Software piracy is the most visible indication
of lax regard to IPR.With the exception of the United
Arab Emirates, whose strenuous efforts to control piracy
earned it a position among the world’s 20 countries
exhibiting the lowest piracy rates, other Middle Eastern
countries tolerate high piracy levels.
Lax IPR enforcement has direct and, perhaps,
unanticipated consequences.According to a 2005 study
undertaken by the International Data Corporation and
BSA between 2000 and 2004 Egyptian demand for soft-
ware increased by 48 percent.12
Egypt today hosts the
largest regional software sector as a fraction of its IT
sector. However, the study estimates the country could
nearly double the size of its IT sector by 2009 if it were
to reduce its 65 percent piracy rate by 10 percent.
The UN Commission notes that, although most
Western Asian countries have proposed or are in the
process of formulating IPR and ICT legislation, progress
is slow.With the exception of Saudi Arabia, which has
made strenuous efforts recently regarding IPRs and
copyrights, no country has seen major changes in this
area since 2003.13
The Commission further observes that no country
in the region is in the process of developing regulations
and laws regarding consumer privacy and security over
the Internet.With the exception of e-banking services,
which are largely on e-government sites, no warranties
or laws guarantee consumer information privacy.There
are no official consumer protection associations and no
specific consumer protection laws. However, e-com-
merce laws have been enacted in Bahrain, Jordan, and
the United Arab Emirates. Bahrain, Egypt, and Jordan
have also approved electronic signature laws.
Most recently, the UAE Electronic Transaction and
Commerce Law combined the United Nations guide-
lines with local qualifications.The United Arab Emirates
also passed a Cyber Crime Law to fight misuse of
cyberspace and new technologies.Although these new
measures construct a sound platform on which to build
a regulatory framework, they do not address some
important aspects of electronic transactions, such as pri-
vacy, jurisdiction, data protection, and domain names.
84
Table 3: IP protection in the Arab world in international
comparison
Rank on pillar
Country Score (out of 128 economies)
Algeria 3.28 73
Bahrain 4.08 48
Egypt 3.55 63
Israel 5.48 21
Japan 5.88 12
Jordan 4.21 44
Kuwait 3.62 59
Libya 2.80 94
Mauritania 3.25 78
Morocco 3.82 54
Oman 5.30 23
Qatar 4.84 28
Syria 2.89 90
Tunisia 4.62 32
United Arab Emirates 4.80 29
United Kingdom 6.20 6
United States 5.65 17
Source: World Economic Forum, Executive Opinion Survey.
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Personal computer penetration and digital content
With the exception of the Gulf countries, Middle
Eastern personal computer (PC) penetration rates are
significantly below the world average (see Table 4). Since
2003, there have been some national campaigns in such
countries as Egypt, Jordan, Saudi Arabia, and Syria to
encourage citizens to buy computers under a variety of
financing schemes and promotions. However, for many
citizens, cost remains an issue; more importantly, there is
a general shortage of Internet services considered essen-
tial by the average user.
A scarcity of Arabic digital content on the Web fur-
ther diminishes the average user’s perceived need to
acquire a computer.While the world’s Arabic speakers
number 300 million,Arabic Web pages represented only
0.2 percent of total Web pages in 2006, or an estimated
100 million pages compared with approximately 40 bil-
lion pages in all other languages. By contrast, Korean
Web pages account for 4.4 percent of the Web’s content,
although Korea has a population of 45 million.14
The low (10 percent) penetration rates across the
entire Middle East limit the commercial incentive to
create Arabic pages, as does the expectation of most
Arab Internet users that information and Arabic content
should be free. Unfortunately, penetration rates are not
high enough to justify advertising-supported websites, so
a cycle of neglect is perpetuated. Regional governments,
to varying degrees, recognize the need to invest in
Arabic content, but in most cases such investments take
the form of e-government online publications and gov-
ernment information.
A previous barrier to finding Arabic content—
the lack of a full search engine optimized for Arabic—
will likely be removed in early 2007, when a joint
Saudi-German project plans to launch the Sawafi search
engine. Its anticipated high-powered local Arabic pages
searching capabilities will undoubtedly assist the Arabic-
speaking Internet users who do not speak English (this
was 65 percent in 2005, according to Madar Research).15
But the search engine will of course not create com-
pelling content, so new policy initiatives should be con-
sidered to help the private sector produce content to
stimulate consumer demand.
E-commerce
E-commerce activity is generally low in the region. In
2004, business-to-business (B2B) e-commerce was esti-
mated at US$9 billion, or 1.45 percent of total regional
GDP valued at US$620 billion, in substantial contrast to
a global average estimated at 5 percent of GDP.16
Indeed, across the Middle East only 28 percent of firms
use the Internet for conducting business, almost a third
less than the average 38 percent for the remaining
developing world.17
The principal drivers for B2B
e-commerce are multinationals that require distributors
and agents to use online channels.The second major
factors encouraging e-commerce are local and federal
governments moving increasing amounts of tender offer
and payment activities online.
Domestic transactions are expanding at a much
slower pace. E-commerce offers the potential to lower
costs, increase business opportunities, and stimulate
cooperation among business partners and suppliers.
However, many Middle Eastern firms—most notably
small, domestically owned or nonexporting firms—do
not appreciate the value ICT strategies or applications
could bring to their business. SME owners see few
incentives to change business models and operating pro-
cedures when the costs of adopting ICT are significant
and known while returns are uncertain.There is also a
general lack of alliances between governments and busi-
ness sectors that would promote B2B e-commerce.
According to the UN Commission, this slow
take-up is exacerbated by several other issues:
• the small number of regional institutions using the
Internet in their operations;
• a limited set of companies willing and capable of
migrating to online purchase and sale transactions;
• the paucity of integrated technologies linking elec-
tronic purchase applications and back-end systems,
particularly enterprise resource planning applica-
tions; and
• an absence of a legal framework to protect e-com-
merce (with the exceptions of Bahrain, Jordan, and
the United Arab Emirates).
A prominent regional exception is the e-commerce
marketplace Tejari.com, launched by Dubai World and
now franchised in Jordan, Kuwait, Lebanon, Oman,
Pakistan, and Saudi Arabia. However, although the trading
platform recorded over US$3 billion in transactions by
the close of 2006 since its founding six years earlier,18
this represents a small percentage of intraregional trade.
Limited Internet access, as well as cultural reasons—
that is, when people value holding products before pur-
chasing—have restricted B2C e-commerce. However, as
credit card penetration rates increase, online purchasing
of products and services not available locally will
85
Table 4: Personal computer penetration rate in selected
countries and regions, 2004
PCs per 100
people (percent)
GCC countries 11.7
Non-GCC Western Asia members 3.5
Total Western Asia region 4.3
World average 12.0
Source: Madar Research Group and Gartner (2005), cited in UN-ESCWA, 2005 p. 73.
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become more significant. Indeed,Visa International
reported a sizable increase in online purchases in 2005,
primarily in the Gulf and Saudi Arabia.
E-government
Middle Eastern governments are making progress offer-
ing citizens e-government services, although, as may be
expected, substantial disparities reflect regional inequali-
ties in income and ICT availability. In 2005, Egypt and
the United Arab Emirates recorded some of the best
world improvements in the UN e-government readiness
rankings (see Table 5).The United Arab Emirates
merged information and services into a single gateway,
while Egypt further improved its e-government central
portal. Qatar has made significant investments to
enhance e-government capabilities, which likely will
accelerate and expand because the government entered
into a partnership in late 2006 with the Singapore
InfoComm Development Authority to improve ICT in
both the public and private sectors.
A number of countries have innovative e-government
initiatives that could serve as regional best practices to
guide the improvement of e-government services.The
following examples are merely illustrative:
• Bahrain’s smart card technology, as part of a broader
e-government strategy, enables such activities as
conducting official procedures, accessing money,
and recording personal educational and health data.
• The Emirates Identity Authority was created as a
federal government organization to develop and
manage a modern and integrated population
registry and identity management system for UAE
citizens and residents.The new system will encom-
pass several key technologies, such as smart cards,
biometrics, and public key infrastructure.
• Bahrain, Egypt, and the United Arab Emirates are
leading regional countries offering public informa-
tion through portals and official sites.
Innovation
For innovation to spring from the spread and use of ICT
technologies, a number of conditions need to be in place
in the economy. In the autumn of 2006, Moutamarat,
INSEAD, and PricewaterhouseCoopers surveyed
executives across the Arab world about their views on
innovation.These views provide insight into factors that
facilitate and impede innovation; the survey points to
areas that need to be addressed to make the economy
benefit more from spillover effects ICT generates.
Executives were asked a number of questions about
their companies’ successes and challenges in innovating.
The overall finding was that if businesses are to innovate
to become stronger regional and global competitors,
Middle Eastern governments must make a stronger
commitment to promote innovation.
Executives stated that the most important challenge
for successful innovation in the region is the lack of
adequate resources (see Figure 1)—both qualified per-
sonnel (30 percent of respondents) and financial
resources (17 percent). Interestingly very few executives
state that internal organizational rigidities hindered
innovation in their companies. Firms in the region
would innovate more with improvements in market
conditions—such as the provision of greater information
about market practices and opportunities (11 percent),
less restrictive regulatory policies (13 percent), and a
lower overall level of economic risk (12 percent).
Executives were also asked to rank the countries
with the highest potential for becoming the innovation
hub for the region (see Figure 2).The United Arab
Emirates comes up dominant in the top spot with the
support of 42 percent of the respondents.The United
Arab Emirates has earned this distinction because of a
number of investments it has made in developing its
technological and innovation capabilities.The following
section provides more details on the innovation strategy
of the United Arab Emirates. Other countries in the
region should examine their own innovation strategies
and market conditions if they wish to emulate the
United Arab Emirates and take advantage of the oppor-
tunities available in transitioning to a more innovation-
driven economy.
In terms of sectors, the ICT and the energy, mining,
and utilities sectors are ranked as the most innovative in
the Arab world by about a quarter of the respondents
for each (see Figure 3).There is a lot of potential for
innovation in other sectors, such as health care, retail
and consumer goods, and financial services.
Case studies of innovative initiatives
The instrumental role of Middle Eastern governments
in stimulating technology development and innovation
is documented in the following two case studies:
Since 2000, UAE policymakers have promoted
building the Emirates into information-rich societies.
86
Table 5: UN e-Government Readiness Western Asia
rankings
Country 2005 Rank 2004 Rank
United Arab Emirates 42 60
Bahrain 53 46
Qatar 62 80
Jordan 68 68
Kuwait 75 100
Saudi Arabia 80 90
Egypt 99 136
Oman 112 127
Syria 132 137
Source: UN, 2005.
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87
0 5 10 15 20 25 30
Don’t know
Refused
Internal organization rigidities
Lack of time to encourage innovation
Lack of physical infrastructure
Lack of access to new markets
Lack of information on technology
Lack of information on markets
Economic risks
Restrictive regulatory policies
Lack of financial resources
Lack of qualified personnel
10
4
4
5
6
7
8
11
12
13
17
30
Figure 1: What are the greatest challenges to your company’s ability to innovate?
Source: Moutamarat, INSEAD, and PricewaterhouseCoopers survey.
0 10 20 30 40 50
Don’t know
Refused
Tunisia
Lebanon
Jordan
Qatar
Saudi Arabia
Egypt
United Arab Emirates 42
10
8
6
6
4
3
2
9
Figure 2: Which Arab country has the greatest potential for becoming the innovation hub for the region?
Percent of responses
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The UAE case study discussed below describes some of
the innovation- and ICT-based initiatives they have pur-
sued to realize their intentions.
In the second case study, Jordan, lacking natural
resources, has elected to reinvent its educational system
through innovative education initiatives. Investing in
education was deemed the most appropriate mechanism
to improve employment opportunities for the country’s
large, youthful population; at the same time, lack of
human capital has been identified as the key obstacle to
innovating in the region. Jordan, seeking to become an
information-work economy, has created a number of
cutting-edge ICT-based educational programs through
public-private-partnerships that are now exported to
other countries.
Case study 1: Innovative policies:
The United Arab Emirates success story
The United Arab Emirates has combined innovative
government policies and the forces of petro-dollars
to redefine its economic landscape.The country’s per
capita income is on par with those of leading Western
European nations (US$28,581 in 2005). Certain observ-
able parameters indicate that the country has a great
potential for becoming a top-notch knowledge-based
economy stimulated and energized by a host of innova-
tive initiatives and programs; public- and private-sector
entities in the United Arab Emirates have started their
journey of focusing on innovation as a driver for further
development and growth. Supportive market mechanisms
and policies are fueling the innovation wheel. Currently
the country enjoys high levels of broadband Internet
penetration, particularly in Dubai (64 percent) and a high
mobile telephony penetration rate (close to 100 percent).
The country is significant today as a business, technology,
education and health-care hub in the region.19
The recent Moutamarat-INSEAD-
PricewaterhouseCoopers survey on innovation places
the United Arab Emirates as the forerunner in the region,
rating it as the country most likely to become the
region’s innovation hub.The survey respondents rated it
four times more likely than its closest rival, Egypt, to
become the dominating innovation influence in the
Arab world. One might argue here that the United
Arab Emirates has reached a high-tech frontier and that
innovation, one of the pillars of competitiveness, is, if
not the only driver, certainly among the self-sustaining
drivers of growth and development.
Responding to the rapidly growing importance of
the United Arab Emirates and riding the wave of inno-
vation in this market, many global corporations are
establishing “innovation centers” in that country. One
such facility was established by Bayer MaterialScience
AG in November, 2006—this is the first development
center for high-quality polymer materials in the region
to have access to a wide range of options for technical
service, the development of new applications, and training
for customers and employees.The United Arab Emirates,
88
0 5 10 15 20 25
Don’t know
Refused
Entertainment and media
Health care
Retail and consumer goods
Financial services
Travel & Tourism
Engineering, construction and real estate
Energy, mining and utilities
Information and communication technologies 24
23
11
9
8
4
3
3
2
12
Figure 3: Which industry sector has the highest level of innovation in the Arab world?
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like many other Arab countries, is concentrating on
developing its innovative capacity and providing possible
solutions—such as raising awareness of the need to
develop an innovative capacity—to many of the hurdles
associated with these bold initiatives.The area is witness-
ing a surge of public- and private-sector cooperation and
partnerships to deal with these issues.
Unlike any other country in the Gulf, the United
Arab Emirates has worked very hard on its technology
initiatives.This is manifested in a maturing IT market,
which has been estimated to be worth US$1.46 billion
as of the end of 2005 and is expected to top the US$2.2
billion mark in 2008.20
Dubai has been in the lime light
for the past six years, but, unsurprisingly,Abu Dhabi, the
nation’s capital, is currently emerging as the biggest
technology spender in the country, with total IT spending
in 2005 valued at US$769 million (46.89 percent of the
market).21
With regard to the latest advancements related
to technology applications in the country, new develop-
ments have evolved rapidly, from imaging and archiving
solutions to enterprise portal and content management
systems.The United Arab Emirates is becoming more
advanced very quickly as it is driven by the desires of
both private businesses and the government toward a
digital- or knowledge-based economy.
The first of the technology-intensive innovation
initiatives in the United Arab Emirates was Dubai Media
City (DMC), launched in November 2000. Next to
DMC are Dubai Internet City (DIC) and Knowledge
Village.The major goal of the multibillion dollar DMC,
DIC, and KnowledgeVillage complex is to create a
cluster of innovation comprising educators, incubators,
logistic companies, multimedia businesses, telecommuni-
cations companies, remote service providers, software
developers, and venture capitalists in one place.
DIC is the region’s first technology-innovation
zone and is viewed by decision makers in this country
as an economic driver not only of Dubai’s economy,
but also of the United Arab Emirates as a whole.Today
hundreds of high-tech firms are housed in DIC. DMC
houses more than 550 media companies, including
global giants, along with regional companies and new
startups. Companies in this high-tech corridor employ
more than 7,000 knowledge workers from all around
the world.
Another mover and shaker in the high-tech corridor
is KnowledgeVillage; this project is designed to create a
wired community to help build the region’s talent pool
and advance its move to the knowledge economy.
KnowledgeVillage is located in the Dubai Technology
and Media Free Zone with DIC and DMC. By being in
the high-tech corridor, KnowledgeVillage offers its
partners the prospect of forging partnerships with the
business community and creating a vibrant learning and
innovation environment. Currently, KnowledgeVillage
has more than 70 educational and research institutions
as partners.
Also worth mentioning is Dubai Silicon Oasis
(DSO), which is intended to be one of the world’s lead-
ing high-technology parks for the semiconductor and
microelectronics industry. DSO is an innovation-driven
technology community, housing microelectronics- and
optoelectronics-related enterprises, a state-of-the-art
microelectronics innovation center (MIC), fabrication
plants, research and development centers, and specialized
academic institutions and residential areas.
The government of the United Arab Emirates has
been a key driver in the innovations within the country.
The Dubai e-government initiative is an integral com-
ponent of DubaiVision 2010, which aims to establish
Dubai as a knowledge-based economy by leveraging
tourism, IT, media, trade, and services as pivotal indus-
tries in an effort to move away from dependence on oil-
related products.The Dubai e-government initiative
aims to improve and innovate in government services by
using technology as a key enabler for a customer-centric
approach to providing government services.To achieve
these goals, the Dubai e-government has developed and
implemented a number of projects that were successfully
completed in the past four years (2002–06). Examples of
these projects are ePay, askDubai, mDubai, eIntegrate, eHost
and eHost, eJob, eSurvey, and eCitizens.
Many Dubai government departments have reached
the fifth stage of e-government evolution—seamless
integration.A case in point is the eService, which was
recently launched between Tejari and the Department of
Economic Development (in January 2006); all 50,000
organizations licensed by the department now have
automatic access to Tejari LINK—the service that
enables online market-making for businesses of all sizes
and is facilitated through a quick and affordable one-
time registration on the Tejari trading community.This
initiative specifically supports SMEs, which are growing
at a fast pace.Through Tejari LINK these organizations
automatically receive a designated website to ensure a
significant Web presence for each company. In addition,
they are added to a national online directory, join a
message center to facilitate trading leads, and receive
space for electronic product showrooms and e-exhibition
functionality.Another feather in the cap of Tejari is the
creation of specialized subcommunity portals that cater
to specific community clusters or industry segments.
One such portal is the one created for the more than
5,000 companies located in the Jebel Ali Free Zone
Authority (JAFZA), which enables the free zone com-
panies to send and receive trade leads, create online
company profiles and product showrooms, and find suit-
able trading partners through Tejari Exchange.22
Case study 2: Innovative classrooms:
The Jordan Education Initiative
Jordan is a small desert country that lacks the oil and
natural gas resources found in the Persian Gulf; yet, like
its foreign policy, Jordan’s education philosophy has been
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developed with an eye to the country’s unique position
in the region. English is taught in all Jordanian public
schools, and the country has marketed itself as a safe and
open place for foreign college students. Jordan invests a
higher percentage of its gross domestic product in edu-
cation than any other country in the Arab world.24
With a high level of unemployment (estimated
between 15 and 20 percent), a young population (34
percent are under 14 years of age, and there is a median
age of 23 years), and a low per capita income (US$4,700
in 2005), the political leadership in Jordan is convinced
that the real wealth is in young people. It has therefore
championed innovation in the educational system in the
country through the use of technology.Through the
Jordan Education Initiative (JEI), the country’s main
objectives are to enable its students to compete globally
in the knowledge economy, train teachers and adminis-
trators to use technology in the classroom, and guide
students through critical thinking and analysis.Today, the
JEI is being replicated in Rajasthan, India (launched in
November 2005), the Palestinian territories, Bahrain,
and most recently Egypt (launched in May 2006), as
well as in other countries.
The JEI runs parallel to and shares dependencies
with two existing national programs in Jordan: (1) the
Education Reform for the Knowledge Economy
(ERfKE) program, a reform program supported by
World Bank; and (2) the National Broadband Learning
and Research Network, a nationwide high-speed broad-
band network connecting all of Jordan’s public schools,
universities, community colleges, and community access
centers, which reached 1.5 million learners by the end
of 2006.
The JEI initiative was officially launched in June
2003 by the World Economic Forum’s IT and telecom-
munications industry governors to transform public
education through technology in Jordan. In addition to
the Forum, which sponsored the JEI, the initiative has
over 45 organizations that include 25 international pri-
vate-sector partners, especially in the ICT sector; 17
local establishments; and 11 government agencies and
NGOs. It has four major objectives:
• Improve the delivery of education in Jordan
through public-private partnerships.
• Unleash the innovation of teachers and students
through the effective and efficient use of ICT.
• Build the capacity of the local ICT industry.
• Create a model of reform that can be used in other
developing and emerging countries.
Two distinctive features set this initiative apart from
others. First, it is an ambitious blueprint that uses tech-
nology as a catalyst to innovate in the educational system
and accelerate Jordan’s development into a knowledge
economy. Second, it is an application of ICT through a
public-private partnership.These partnership arrange-
ments have been win-win situations for the JEI and the
country in general. Public schools have benefited
tremendously from what the private sector has con-
tributed in terms of skills, innovation, project manage-
ment, technical expertise, and so on.With the assistance
of substantial investments from companies—(financial, in
kind, and expert-based) such as Cisco, Computer
Associates, Dell, DHL, IBM, France Telecom, Microsoft,
Intel, and many others—tremendous improvements
were provided to e-Contents, especially in mathematics,
science, and English as a foreign language (EFL).As of
November 2006, 35 partners had been engaged in
deploying the technical infrastructure to 100 Discovery
Schools; helping in designing, developing, and/or rolling
out five e-Content curricula (in math,Arabic, English,
ICT, and science). In February 2006, Math e-Content,
which had been piloted in the previous year, was rolled
out online to all Discovery Schools. Currently, the ini-
tiative is piloting an ICT e-curriculum that will apply
technology to subjects such as music, language, and sci-
ence, rather than teaching technology for its own sake.
In terms of the initiative impact, and as of November
2006, 85,000 students, teachers, and principals benefited
from the initiative in one form or another.
Rewards to private-sector entities are in the form
of strengthening their reputation and polishing their
image within society, yielding a long-term return on
social capital and social investment. For the private sector
in particular, an effective educational system is critical
for economic growth and social development, in building
a skilled labor force, and improving productivity. But the
ultimate winner in this educational public-private part-
nership initiative is the group of students and teachers,
especially in public schools, who are having their
schools fully wired and equipped and their human
resources fully trained and skilled.
Another major objective of the JEI initiative is to
help the country build a model of education reform and
innovation that can be exported to and/or replicated in
other developing countries. Currently, the JEI is viewed
as a success story and has helped spur off other educa-
tion initiatives around the world, such as the Rajasthan
Education Initiative (begun in November 2005) and the
Egyptian Education Initiative (May 2006), among oth-
ers. Based on the success of the JEI initiative, among
other factors, the World Economic Forum is launching a
new project—Partnership for Education— with
UNESCO, under the auspices of the Forum’s Global
Education Initiative (GEI).
Notwithstanding the discernible accomplishments
of this initiative, unfortunately the JEI still lacks a set of
formal performance evaluation criteria for impact assess-
ment in terms of ensuring access, improving quality, and
providing the right teaching.Another challenge that has
to be addressed is capacity building and cultural change
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management, both at the micro and macro levels.The
role of the private sector does not stop at offering finan-
cial and technical support; it really has a role to play in
defining the standards of education and in offering
internship and training programs.
Policy recommendations to promote innovation
As Middle Eastern policymakers consider how to position
and prepare their countries for the future, it is especially
important that they consider the process to assess and
implement innovations.Technology is evolving at ever
more rapid rates and decisions cannot be deferred in the
hope that a new more powerful or cheaper technology
will make decisions easier.The history of post-war devel-
opment is a progression of ever more versatile technolo-
gies arriving in ever faster waves. If the developed world
had waited for the next set of technology inventions to
improve investment cost-benefit ratios, the developed
economies would not stand where they do today.
Estimating cost-benefit ratios of technology and
innovations is not a science.The potential for improving
economic, social, and educational prospects hinge upon
myriad governmental and business decisions, as well as
on cultural issues. US companies, as a group, have gained
more from technology investments in terms of produc-
tivity and innovation than European companies.
However, this is an average generalization. Numerous
European and Asian companies are world leaders, apply-
ing technology to boost innovation levels and, ultimate-
ly, performance.They have applied technologies to their
unique requirements, and at the same time adapted and
changed their business practices in a restless process of
assessment and innovative renewal.
There is extensive sharing of information, regional
initiatives, and collaborative alliances in the developed
world. Fast-changing technology introduces novel appli-
cations for new and established markets. It is beyond a
single major company or government’s capabilities to
hazard substantial investments alone, and no sector sees
more joint ventures or alliances than ICT. Monopolistic
practices are frequently incompatible with keeping pace
with, let alone anticipating, chameleon technology
evolutions.
This pace of change introduces two major challenges
for Middle Eastern policymakers: managing the changes
innovative technology development requires, and enter-
ing into regional and public-private partnerships to
defray risks and maximize technology’s potential for
supporting innovation and improving the economic
prospects of all citizens.
It is hoped the following recommendations to stim-
ulate innovation will help policy leaders review strate-
gies and practices most suitable for their country, recog-
nizing that each Middle Eastern country has different
economic priorities, cultures, and social dynamics.These
differences should not obscure the potential to exchange
useful information, best practices, and explore launching
public-private and regional initiatives.
Encourage innovation in small- and medium-sized
enterprises
SMEs comprise the greatest number of service compa-
nies and they employ the largest total numbers of
employees in the region. Because of their aggregate
prominence, technology take-up among SMEs could
bring substantial economic benefits to Middle Eastern
countries, provided SMEs can adapt and innovate in
their business practices to capture productivity improve-
ments. Unfortunately, SMEs face formidable hurdles in
adopting technology and innovating in business practices.
Many SME owners and managers assess technology in
terms of immediate cost rather than as an investment for
innovation, to gain more customers, reduce long-term
costs, and improve performance.These attitudes will be
difficult to change, but they must evolve if the Middle
East is to enjoy the potential economic and social gains
stimulated by technological progress.
However, in defense of conservative Middle Eastern
SME owners and managers, it should be noted they are
far from alone in hesitating to use technology beyond
basic administrative and accounting functions. Many
European SMEs have also been slow to integrate tech-
nology into their businesses.24
If substantial numbers of
Middle Eastern SMEs are to adopt technology more
aggressively, governments must make patient and persist-
ent efforts to change long-settled business methods. In
particular, governments should consider the initiatives
listed below.
Education
There simply are not enough ICT professionals available
whom SME managers can hire full-time to supervise a
company’s technology program. Educational investments
are required to provide training and attract students to
new ICT career choices. Higher funding to support
teachers’ professional development is also needed. For
those students who do not choose an ICT career,
schools should improve general technology literacy by
offering basic business-related technology training and
skills as part of the standard curriculum.
SME software and providers
Many SME applications are not optimized, in terms of
language or functions, for Middle Eastern SMEs.The
paucity of digital Arabic content and software presents
an ideal opening for Middle Eastern countries to sponsor
national plans to promote an Arabic software industry.
The timing is particularly auspicious with the
planned inauguration in 2007 of the Saudi-German full-
featured Arabic search engine, Sawafi. Software, ranging
from tools and packaged software to tailored applications
and multimedia tools, is a high-growth industry that can
be launched and supported with relatively low capital
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and financing expenditures.25
Moreover, measures to
support and encourage Arabic software development
will rebound to the greater benefit of Middle Eastern
technology evolution because the software industry will
require IPR and patent protection, as well as supporting
e-commerce legislation. Furthermore, as more computers
are installed in increasing numbers of schools and uni-
versities, there will be greater demand for more Arabic
content and software to advance e-education initiatives,
both at schools and at home. National software and
content development programs can also open another
venue for regional cooperation. Last, and most impor-
tantly, a robust local software industry can help reverse
the “Arab brain drain” by offering attractive careers in
the Middle East.
ICT-related financial incentives
Research and development (R&D) in technology-related
services and innovative business practices should enjoy
R&D tax credits, especially as services command such a
large amount of Middle Eastern economic activity.While
these R&D tax credits would also benefit large compa-
nies, they would encourage SMEs to experiment with
introducing new business practices using technology and
innovative processes.Tax credits could also be introduced
for businesses to purchase computers and software.
Public awareness
The government should invest in publicity campaigns
and organize technology resource centers in business
districts to inform and educate SME owners about the
innovative potential of new technologies. Financial
incentives to encourage SME owners to assess technolo-
gy options could be offered, for example, by issuing
consultancy vouchers.
Introduce innovative financing approaches
Over the past decade, Middle Eastern countries have
financed technology infrastructure (with the exception
of mobile communications) principally from two
sources: government budgetary allocations, primarily
through revenues generated by the telecommunications
monopolies, and donor and international financial insti-
tution programs. However, the scale of investments
required to improve technology infrastructure capacity
and performance is beyond the ability of these tradition-
al methods in many countries. Even those countries
enjoying a surge in oil revenues should consider new
financing techniques, because they face so many com-
peting and pressing socioeconomic needs.Technology
presents many potential openings to attract investors,
unlike such public priorities as improving health care,
literacy, and roads. Notable ways to encourage private
and foreign investment, especially recommended by the
World Bank, include:26
Competitive subsidies
Competitive bidding to award cash subsidies to technol-
ogy providers can stimulate private investment by lower-
ing up-front risk. Subsidies help public finances remain
within budget because they are not open-ended com-
mitments or based on percentage formulas.Technology
providers must meet performance goals to receive pay-
ment, which encourages compliance. Moreover, subsi-
dies can be targeted to social or economic priorities,
such as improving Internet access in rural areas.
Aggregate demand
Pooling government departments’ and agencies’ technol-
ogy purchasing needs and soliciting competitive tenders
can stimulate the private sector to invest in new infra-
structure and services. For example, governmental cross-
departmental commitments to purchase broadband
capacity can limit the commercial risk of installing new
networks while reducing the overall cost to the govern-
ment. However, if demand aggregation is to succeed,
departments must coordinate their plans and requirements.
Unless officials at the highest administrative levels give
forceful direction to support interdepartmental technol-
ogy purchasing, administrative rivalries will likely scuttle
joint departmental tenders.
Private funding guarantees
Governments can develop loan guarantee schemes, as
have been applied in Europe, to encourage private
lenders to finance technology investments. However, as
Middle Eastern debt markets tend to favor funding
working capital, this approach may appeal more to
foreign lenders and financial intermediaries than to
domestic businesses.
Lower administrative obstacles to encourage investments
Middle Eastern states are not alone among developing
countries in shouldering a legacy of extensive bureau-
cracies and administrative procedures.Although some
Middle Eastern countries have made significant recent
progress in improving the business environment for
entrepreneurs, conditions are far from ideal.There is not
a single entrepreneur in any country who does not
complain about red tape, but Middle Eastern administra-
tive burdens can especially hinder innovative ventures,
which, by nature, must adapt at relatively short notice.
Perhaps technology can serve as a useful wedge to help
governments negotiate administrative reforms.
Public-private partnerships
Regional and national cultural, social, and traditional
values strongly influence investment priorities and
methods.The Middle East has few successful public-
private partnerships, or, for that matter, public-public
regional initiatives to date. However, there are signs of
change. Over the past several years, Egypt, Jordan, and
the United Arab Emirates have encouraged investments
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and partnerships in technology projects. Egypt has con-
vinced international companies, such as Microsoft and
Cisco Systems, as well as national companies, to partici-
pate in multimillion dollar investments. Jordan has
forged partnerships between its software development
sector and international companies to increase software
exports to developed countries.
The large scale and cost of infrastructure investments,
the specific technologies, and their implications for
future development are all sound reasons for Middle
Eastern countries to explore new financing, partnerships,
and regional initiatives to share resources and expertise.
Public-private partnerships are well suited to long-term
technology investments where risk is higher than other
opportunities that typically attract private Middle
Eastern investors, such as real estate or commercial trad-
ing. However, such partnerships require new sets of
negotiating and oversight skills for governments to be
able to participate effectively. Because the Middle
Eastern technology sector is in the early stages of devel-
opment, foreign companies must participate to transfer
knowledge and expertise. Until a full set of IPR and
patent protection laws are promulgated and enforcement
is raised to the standards of developed countries, attract-
ing foreign partners will be difficult and time-consuming.
Innovate by sharing best practices
The Middle East is home to several innovative initiatives
that could serve as models for best regional practices,
and possibly extend to other forms of cooperation and
mutually beneficial endeavors. For example, Egypt,
Jordan, Saudi Arabia, and Syria have recently introduced
programs to promote family-owned computers through
different types of government-supported financing
plans. Foreign technology manufacturers, such as
Hewlett Packard and Acer, are beginning to invest in the
region, constructing new plants in Saudi Arabia.
Innovation parks, clusters, and free trade zones, encour-
aged and fostered by different types of financial and reg-
ulatory incentives, have appeared throughout the Middle
East. Information about, and access to governmental
programs have been priorities for many countries, and
e-government programs hold great promise for advanc-
ing the sharing of best practices.
However, as a general rule and in contrast to Asia,
where National Information Technology Councils share
information and experiences, regional sharing of knowl-
edge is not common among Middle Eastern countries.
For example, although the League of Arab States identi-
fied 19 projects well suited for regional cooperation in
2001—such as establishing technology indicators, devel-
oping an Arab regulatory framework, creating a center
for digital documentation and archiving heritage, devel-
oping access nodes to connect Arab internet networks,
and translating and Arabizing ICT terminology—
progress has been slow.
Recognizing the importance of regional coopera-
tion, in 2003 the United Nations Development
Programme announced an initiative, Information &
Communities Technologies for Development in the
Arab Region (ICTDAR) to assist all Arab countries
improve their ICT capabilities.As previously mentioned,
the International Telecommunication Union,Arab
Regional Office has also launched an inter-Arab
Internet connection project.
A promising route to encourage innovative regional
projects would commence by developing formal institu-
tional channels to share information about best practices.
As these contacts built mutual confidence, more elabo-
rate projects requiring resource commitments could
then be planned and considered. Identifying regional
projects that respect a member country’s national culture
and priorities has not been an issue. Rather, summoning
the political will to explore ways that regional coopera-
tion can advance each country’s development agenda
remains a concern. Sharing best practices in innovation
offers Middle Eastern countries a useful and noncom-
mittal path toward regional cooperation.
Invite private-sector innovation by opening markets
Recent liberalizations in the Middle Eastern mobile
telephone markets have proven the power of competi-
tion to introduce new innovative services, lower prices,
and stimulate demand. However, main telephone lines
remain a monopoly in many countries. Governments
should introduce competition to stimulate much-needed
private-sector investment and innovations.
Opening monopoly main telephone lines to com-
petition is only the start to crafting a new regulatory
regime better suited for stimulating innovation. For
examples, novel fixed wireless technologies and
advanced digital processing techniques could spread
Internet connectivity at far more affordable costs to
much more of the population.The developed world is
in the midst of devising new regulatory approaches for
some of these new transmission technologies by replac-
ing individual operator licensing with shared and
license-exempt use. Because state-of-the-art digital pro-
cessing techniques let operators share spectrum without
interference, they promise to reduce regulatory burdens
and encourage competing vendors to deliver more serv-
ices to the public and business at more affordable rates.27
Share regulatory and legislative information
Regulatory issues are complex in the fast-moving world
of technological innovation. Regulators in the developed
world regularly share information and analysis to develop
policies and monitor developments. Middle Eastern
governments should endorse this model of international
cooperation.The recently formed Arab Regulators
Network is a promising new regional initiative; it has
advocated exchanging information and possibly merging
pilot projects across the entire Arab region.
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A viable and enforced legal regime must be in place
for the Middle East to accelerate technology develop-
ment and e-commerce. Governments should share legal
research and analysis to speed promulgating laws and
regulations to:
• protect personal data and information privacy;
• protect Internet-related intellectual property,
publishing rights, and software applications;
• accelerate signing, ratification, and joining
international agreements relating to IPR, including
the Patent Cooperation Treaty and the Patent Law
Treaty; and
• accelerate the introduction of e-commerce
legislation.
Monitor and measure development and innovation
within and across countries
Middle Eastern strategies differ in many respects, but all
share a need to devote more resources to collecting
timely data to monitor innovation and development
progress.Without reliable data, governments cannot
accurately assess progress and refine plans.The UN, the
World Bank, the International Telecommunication
Union, and regional organizations have embarked on a
major project—Partnership on Measuring ICT for
Development—to convince all countries to collect a
small set of relevant data to render analysis much more
accurate and up to date. Middle Eastern countries
should strive to track and compile these basic statistics
because they will greatly aid monitoring and improving
their technology and innovation strategies.
Encourage entrepreneurial opportunities such
as offshore call centers
The global offshore call market—currently valued at
between US$40 billion and US$50 billion—is growing
rapidly at around 30 percent annually. India has domi-
nated the market, serving US and UK clients, but now
continental European companies are seeking to out-
source call centers; such centers require multilingual
capabilities beyond English.They also prefer call centers
that fit more closely, geographically and culturally, with
their home base.
Middle Eastern call centers that cater to this new
market are now appearing. In 2005,A.T. Kearney’s
annual ranking of global services locations placed Egypt
as 12th, followed by Jordan at 14th and the United Arab
Emirates at 20th.28
The strong commercial potential of
these locations is best suggested by noting that the 2004
survey included none of these countries.
Egypt has encouraged the development of call cen-
ters through the support of the Information Technology
Industry Development Agency, formed in 2004.This
agency, which includes a public-private task force, helps
local and foreign investors secure tax breaks and organ-
ize call centers in free trade zones, notably SmartVillage
in a Cairo suburb. SmartVillage is the first of several
planned innovation clusters the agency intends to estab-
lish. Furthermore, to improve the cost competitiveness
of Egyptian call centers, the government has plans to
grant the first two licenses for internationalVoice over
IP (VoIP) services.VoIP licenses are an exception in the
Middle East as most countries restrictVoIP to protect
their main telephone line monopoly revenue.
Egyptian support of its nascent call center industry
exhibits a number of characteristics important to stimu-
lating innovation: a special agency with public-private
participants to oversee developing call centers, tax and
other financial incentives to attract domestic and foreign
investors, innovation clusters to encourage a favorable
environment for technology companies, and flexibility
to liberalize telecom regulations to introduce new com-
munication technologies.
Conclusion
Since 2000 most Middle Eastern countries have made
substantial progress designing strategies to integrate and
weave the new strands of the information society into
traditional social, economic, and cultural patterns.These
strategies have begun to yield results. Most countries
have seen a surge of mobile telephone use. Increases in
Internet access considerably outpaced world average
growth. Some countries have enthusiastically embraced
e-government initiatives to deepen communications
with citizens and deliver government services.The
pioneering Tejari e-marketplace has demonstrated
e-commerce’s ability to accelerate trading and business
activity.The promise of the Internet and computers to
improve the lives of less-advantaged citizens has been
acknowledged by policymakers as several countries seek
to disseminate computers widely through PC financing
and distribution programs.
If policymakers are to leverage these encouraging
developments into innovation and faster progress, they
should refine the process to prioritize, implement, and
monitor initiatives.The process will also be substantially
more robust, innovative, and versatile if more initiatives
can include new models of public-private partnerships
and regional associations. For in the Middle East, policy
will likely play a greater role than technology in setting
the pace for how innovation evolves.This is because
access to technology is not the bottleneck in many parts
of the Middle East, but creating the overall environmen-
tal conditions for innovation to thrive remains an
ongoing challenge, even in the more developed
economies of the region.
A top policy priority should be to develop ways to
encourage SMEs to invest in technology and innovative
business processes, because the wider economic and
social benefits could be substantial. Nurturing and
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supporting the formation of an Arab software industry is
a most necessary parallel policy initiative to help SMEs
maximize the ways technology could potentially stimu-
late innovative and more productive business activities.
The considerable scale and range of investments
required to raise Middle Eastern technology and inno-
vation performance suggests policymakers should now
explore new financing methods to build infrastructure
and innovation capabilities.These techniques, drawing
upon competitive principles and private-sector partici-
pation, will challenge conventional attitudes toward the
state’s role in the economy, but they hold the promise of
unlocking much-needed new funding sources.
Novel technologies inevitably bring change, unset-
tling at times, as economies and societies adapt.This is
especially true for many conservative Middle Eastern
countries. However, this conservatism can become an
ally to innovation if policymakers reduce risk by sharing
best practices, encouraging information exchanges, and
creating regional innovation ventures.
Notes
1 General purpose technologies are innovations that potentially
affect a wide range of industries in the economy.
2 See ITU (2006).
3 One widely used definition of Middle East is the airline industry’s
IATA standards, which lists Afghanistan, Bahrain, Egypt, Iran, Iraq,
Israel, Jordan, Kuwait, Lebanon, Palestinian territories (West Bank
and Gaza strip), Oman, Qatar, Saudi Arabia, Sudan, Syrian Arab
Republic, United Arab Emirates, and Yemen (Wikipedia, Middle
East, http://en.wikipedia.org/wiki/Middle_East). The subset,
Western Asia, comprises Bahrain, Egypt, Jordan, Kuwait, Oman,
Qatar, Saudi Arabia, Syrian Arab Republic, and the United Arab
Emirates.
4 See World Economic Forum and INSEAD (2005, 2007) for details.
5 See World IT Report (2003), available at www.worlditreport.com.
6 See UN-ESCWA (2005, p. 21).
7 See NAP for the Arab States, International Telecommunication
Union, Arab Regional Office. Available at www.ituarabic.org/IPS-
IDN/Documents/Doc08-
%20NAP%20FOR%20THE%20ARAB%20STATES.ppt.
8 See UN-ESCWA (2005, p. 34).
9 See UN-ESCWA (2005, p. 34).
10 See UN-ESCWA (2005, p. 30).
11 See UN-ESCWA (2005, pp. 10–15).
12 See BSA/IDC (2005a, b); Middle East and Africa Report,
available at www.bsa.org/idcstudy/.
13 See UN-ESCWA (2005, p. 15).
14 See Mrad (2005).
15 See ABC Newsonline (2006).
16 See UN-ESCWA (2005, p. 61).
17 See Poortman (2005).
18 Tejari executive conversation with one of the authors.
19 See Madar (November 2006).
20 See Zawya.com (accessed December 13, 2006).
21 See Zawya.com (accessed December 13, 2006).
22 Mr Hijazi described this portal to one of the authors on November
30, 2006.
23 See Zoepf (2006).
24 See EU ICT Task Force (2006).
25 For a detailed analysis of Arab software industry potential,
see Mrad (2005).
26 See Wellenius (2006).
27 See The Economist (2004).
28 See A. T. Kearney (2005).
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